‘No need to adjust policy settings’ – BSP

After the government released official data showing growth in the Philippine economy of 5.6 percent in the second quarter, up from a revised 5.0 percent in the first quarter, the central bank said it sees no need to adjust its current monetary policy settings.

The rate of second-quarter growth in gross domestic product (GDP) lagged behind the revised 6.4 percent expansion recorded in the year-earlier period, and falls far short of the government’s target rate of 7 percent to 8 percent growth for full-year 2015.

“With the second-quarter number and given the current operating environment, we can expect economic performance that is still strong, albeit more modest than the government’s full-year target. With this outturn, there may be no need for any immediate recalibration of monetary policy settings,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in a text message to reporters on Thursday after the release of the latest GDP data.

Since September last year, the BSP has kept its rate for overnight borrowing at 4 percent and overnight lending at 6 percent.

It also kept the special deposit account (SDA) rate steady at 2.50 percent, while the reserve requirement ratio (RRR) for banks still stands at 20 percent.

But the monetary authority will continue to assess the trends reflecting the potential impact of the El Nino weather conditions on output and the prices of vital goods and services.

“We will also remain watchful of global developments to see how these would affect domestic growth and inflation dynamics,” Tetangco added.

Analysts see steady interest rates
The 5.6 percent growth pace of the economy in the second quarter of 2015 will allow the central bank to keep its key policy rates unchanged for the near term or until early next year, private analysts said.

The consensus view is shared by analysts from the Bank of the Philippine Islands (BPI), the United Kingdom-based investment bank Barclays and ING Bank Manila.

“We do not foresee further monetary tightening, given inflation remains on the lower end of the target and that the BSP [Bangko Sentral ng Pilipinas] remains in a ‘net-tightening’ mode for the year,” said BPI associate economist Nicholas Antonio Mapa.

Mapa said he believes the BSP will expect fiscal authorities to shore up the country’s flagging growth momentum given still strong domestic demand to push growth closer to full-year targets.

“The impending [full impact of]El Nino and creaking infrastructure beg the national government to ramp up spending given their more than ample fiscal space,” Mapa said.

Barclays economist Rahul Bajoria said the investment bank does not expect the central bank to deliver any policy easing despite the cautious stance taken by the BSP on rising market volatility.

Given that domestic activity remains resilient, Barclays has pushed back its rate hike forecast to the third quarter of 2016, which should be after the presidential election in May 2016, Bajoria said.

ING Bank Manila senior economist Joey Cuyegkeng said the BSP’s monetary policy settings are likely to remain steady in the very near term as it remains focused on possible risks to inflation and financial sector stability.

“Upside inflation risks from El Nino continue to preoccupy the BSP’s assessment and the BSP inflation outlook over the policy horizon. Deflation risk, though, is lurking as oil prices remain soft and get close to a seven-year low,” he said.

Cuyegkeng also sees global commodity prices having softened along with the slowdown in China’s economy, although growth in the eurozone and US shows moderate improvement.
“Financial sector risk remains, given volatile financial markets,” he added.